Gas tax hikes pile up amid pandemic
Critics decry bad timing, yet states face shortfalls
Americans who want to stay socially distant during the COVID-19 pandemic now have another reason to think twice before going out for gas.
Several states have increased gas taxes in recent months to make up for sudden shortfalls in revenue devoted to road repairs. As Americans drive less during the pandemic due partly to social distancing and remote work arrangements, gasoline demand has fallen. That’s one key factor triggering the tax increases as lawmakers seek to
limit the impact of lower revenue on road repair budgets.
Supporters say the increases, most of which were triggered automatically, are necessary to keep transportation infrastructure in good shape.
Critics say the gas-tax increases are poorly timed and will hurt low-income drivers at a time when they are more likely to be facing unemployment, reduced hours or pay cuts.
When people drive less, gas tax revenue declines, leading states to seek alternative ways to pay for road fixes. Gasoline demand is about 15% lower than usual, according to oil analysts.
The good news for motorists is this: They’re currently saving at the pump because the COVID-19 pandemic has caused the economy to slow, pushing down demand and prices for oil and gasoline, which is made from crude. The national average price of gasoline was $2.18 a gallon on Tuesday, down 49
cents from a year earlier, AAA says.
“Gas prices are low, and so that presents a big opportunity for politicians that are looking at very grim (revenue) numbers,” said Patrick DeHaan, head of petroleum analysis for GasBuddy.
New York City resident Adam Librot, who used to fuel up his SUV when he drove across the river to go shopping in New Jersey, is upset about the state’s plan to increase its gas tax by 9.3 cents per gallon to nearly 51 cents, not including the federal levy.
“This is the latest in a string of disincentives to go to New Jersey,” he said. Yet Librot said he does not expect many locals to notice the tax increase because people typically blame fuel increases on oil companies.
“It’s embedded in the price,” Librot said of the gas tax. “It’s hidden from sight, so unless you’re aware of it when the flurry of articles come out, it’s gone from the headlines and you don’t feel the tax itself.”
The states averaged 36.4 cents per gallon in gas taxes and fees as of July 1, according to the American Petroleum Institute. The federal tax of 18.4 cents, which is added to the state taxes,
“But even though 36 states have raised gas taxes over the last decade, currently, there are very few states that raise enough money from transportation-related taxes to cover transportation-related expenses.” Ulrik C. Boesen Senior policy analyst at the Tax Foundation, a Washington-based think tank
hasn’t changed since 1993.
Recent increases have included Virginia (5 cents), Nebraska (3.9 cents), California (3.2 cents), South Carolina (2 cents) and Illinois (0.7 cents). Increases coming Oct. 1 include New Jersey and Alabama (2 cents).
Oil Price Information Service analyst Tom Kloza predicts more hikes will follow since demand will remain about 85% of normal for the foreseeable future. “We think there will be a ton of them,” he said. “Most of them are going to come after the election, (taking effect) Jan. 1 or July 1 of next year.”
The problem is that while the gas tax increases are likely to fund millions of dollars in road repairs, they won’t make up for a projected $5 billion loss in revenue due to declining gasoline demand, DeHaan said.
“It’s hard to quantify as a windfall because so many of these states have just been decimated,” he said. “It’s akin to putting a Band-Aid on a gaping bullet hole in the middle of your chest.”
Still, lawmakers need to consider the economic burden of gas tax increases during the pandemic, said Ulrik C. Boesen, senior policy analyst at the Tax Foundation, a Washingtonbased think tank.
“That being said, gas taxes pay for our roads, and it is appropriate that the people who use the roads pay for the roads,” Boesen said in an email. “But even though 36 states have raised gas taxes over the last decade, currently, there are very few states that raise enough money from transportationrelated taxes to cover transportationrelated expenses.”
Lawmakers are expected to look to other sources to pay for road repairs. “If gas taxes aren’t raising enough revenue, taxpayers are simply funding the roads through other taxes,” Boesen said.